On December 9, 2007 the presidents of Argentina, Bolivia, Brazil, Ecuador, Paraguay and Venezuela, together with a representative of Uruguay, signed the founding Charter of the Banco del Sur or the Bank of the South.
The preamble of the Founding Charter in part provides, "it is essential to design a new regional financial architecture to strengthen the role of the South American continent in a world characterised by commercial and financial globalisation, to consolidate the autonomy of regional economies, to continue mitigating external vulnerability, to promote greater stability and productive systems that prioritise the basic needs of our people."
Moreover, the Founding Charter underscores the unique worldview about a regional financial architecture, "that has in its center an institution dedicated exclusively to the promotion of regional development, to be constituted under the sovereign control of South American countries."
That the scope of operations is confined to the geographical area of borrowing member countries is common to all regional development banks without exceptions. What is unique in the Bank of the South is that it does not contemplate, at least for the moment, to open up its membership door to non-regional countries as all other regional development banks have done.
The Inter-American Development Bank originally limited its membership to the countries in the Americas. The African Development Bank likewise restricted its membership to African states in the continent. Both institutions, however, decided to include non-regional countries in order to attract more financial resources from abroad. This is what the Asian Development Bank called "the principle of additionality" by inviting countries outside the region for membership from the outset.
The most recent regional development bank, the European Bank for Reconstruction and Development, opened its membership doors to countries beyond the former Soviet Union republics and the Central and Eastern European countries.
Given such an historical development, prompted by the need for more resources, the Bank of the South is unique. In view of the small number of countries (the total of 12 states and 3 overseas territories), it will remain to be seen whether an endogamous institution of a small membership basis can be financially sustainable as a development institution.
The Quito Declaration of 15 May 2007, adopted at the end of the International Seminar on the "Illegitimacy of the External Debt," foretold what was forthcoming: "We back the government's determination to put an end to the country's subjugation to the IMF and World Bank neo-liberal and interventionist policies, which operated through their conditioned loans."
Moreover, it also declared, "We consider the recovery of resources transferred by way of illegitimate debts as a priority, in order to finance public policies aimed at compensation and true development." This is a direct challenge to the Washington Consensus and the authority and effective control of the IMF and the World Bank. It is part of the historical alliances developed among South American countries since the 19th century as, in the words of Isabel Ortiz, "a strategy to reduce dependency and dominance from Northern powers."
Several governments have started making early repayments of the IMF's loans as a quickest way to extricate them from the control of the IMF: to the dismay of the IMF, in December 2005, Argentina and Brazil decided to repay large loans in the amounts of $9.8 billion and $15.5 billion, respectively. Just consider how much interest payments, ie, income, that the IMF is going to lose, and the reconfiguration of authority and control between the IMF and the World Bank on the other hand and South America has begun.
For those countries critical of the roles of the international financial institutions (IFIs), the idea of Banco del Sur has become a rallying cry to make it as a symbolic instrument of South-South solidarity and fair development in the context of "a virtuous cycle of sustainable development." The Founding Charter of the Banco del Sur therefore contemplates:
-- The reversal of current domestic savings' flow from South to North and intends to ensure that regional savings are used to revitalise national investments, redress asymmetries, develop regional infrastructure, promote employment and a virtuous cycle of economic and social transformation of the region.
-- The fostering of economic activities, strengthening internal markets, raising living standards in order to change migratory flows, achieve social justice and reduce income disparities.
To this end, the Founding Charter makes it clear that the Bank of the South "to be constituted under the sovereign control of South American countries." Accordingly, Article 5 stipulates: "The management of the Bank of the South will have an egalitarian representation for each one of the South American countries that constitutes it, under a democratic system of operations." What separates the Bank of the South from the rest of the IFIs is thus a voting structure of members.
Article 5 is understood to mean to have a "one member country, one vote" system regardless of the size of capital subscription of any member country. Which means the concept of equal representation does not translate into equal share in capitalisation. The experience of the United Nations, which practices a "one member, one vote" system, provides a glimpse into what might develop in the future.
In the rapidly changing configuration of power within the United Nation (thanks to the surge of new members from the Third World as the de-colonisation process completed, each having an equal voting power in the General Assembly), two major developments took place with a view to the hollowing of the numerical power of the Third World. First, some of the key developed countries vigorously pursued the realignment of international organisations by shifting policy fora outside the United Nations' auspices through the adjustment of funding arrangements and the alteration of programs which such funds would support.
Second, these key developed countries consolidated the power of the IFIs through a series of G-7 meetings and the establishment of an Interim Committee of the Board of Governors of the IMF on the International Monetary System and of a Joint Ministerial Committee of the Boards of Governors of the World Bank and of the IMF on the Transfer of Real Resources to Developing Countries known as the "Development Committee" in 1974. All IFIs are capital based as each member country subscribes to capital shares of each IFI, and each member country's voting power is calculated according to the strength of its share-holding.
It is not the number of developing countries, but the voting powers of developed member countries that have determined the course of events. "In this case," concludes Professor Brigitte Stern, "law reinforces the existing power inequality with parallel inequalities."
The Bank of the South envisages its resources to consist of Ordinary Capital Resources and Special Funds. The larger the capital subscription and the amount of contributions by a member country, it is natural that the taxpayers in general and politicians in particular of that member country demand for more accountability for the use of the funds. It remains to be seen how appropriate arrangements can be fashioned in such a way to satisfy the taxpayers and their national parliament's demand for accountability.
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